WAL-MART SEEN ENTERING JAPAN

Byline: Tsukasa Furukawa / Koji Hirano / With contributions from David Moin, New York

TOKYO — A retail race is heating up in a cooling economy.
Wal-Mart plans to open its first store in Japan in 2002. Its hoping to catch up to arch rival Carrefour, which entered the country just last month with a store, and hoping to steal market share from many of the nation’s ailing retail players.
Wal-Mart is rapidly expanding internationally, but still behind Carrefour’s global coverage. Before opening its first unit in Japan, Wal-Mart plans to establish a Japanese subsidiary this summer, to facilitate future openings, according to published reports.
A market development team from Wal-Mart has been eyeing 10 sites in such places as Makuhari, Chiba Prefecture east of Tokyo, and Nagoya, the Japan Economic Journal reported.
Wal-Mart declined to comment Tuesday on the reports about the Japan opening. Currently, the world’s largest chain has 1,062 overseas units, including 492 in Mexico, 242 in the U.K., 173 in Canada, 95 in Germany, 20 in Brazil, 15 in Puerto Rico, 11 in Argentina, nine in China and six in Korea. The company has not announced any additional new markets
The timing seems right for the discount giant to make a move in Japan. The country is suffering from a prolonged recession, making lower price stores more desirable to consumers, and real estate prices have dropped, making the country more accessible for Wal-Mart, a low-cost operator. Also, many homegrown retailers are in a weakened state.
However, profitability in foreign markets does not come quick to Wal-Mart, so its entry into any new market is expected to be cautious. Still, the anticipated entry into Japan reflects increasing foreign retail interest in the country in recent years, despite the economic woes there. Reports have also focused on Marks & Spencer considering entering the market as well.
Big Japanese retail chains have suffered from rising competition from newly emerging stores like Uniqlo banking on low prices of imported goods, and also from a decline in personal spending amid the country’s prolonged economic recession. The bursting of the “bubble” economy in the Nineties has brought a sharp fall in land and real estate value.
Sogo, a major department store chain, is in a rehabilitation process, while financially-troubled Dai’ei, Japan’s largest supermarket chain, is restructuring and closing some stores. These developments followed the bankruptcy of Nagasakiya, a well-known retail chain in Tokyo.
Carrefour, the world’s second largest chain which is based in France, opened its first Japan store in Makuhari only last month. Costco opened its first store last year here. Low interest rates and available space in suburbs will help Wal-Mart and other foreign retailers open doors in Japan.
Carrefour, according to French executives, currently has operations in 27 countries including Taiwan, China, South Korea, Thailand and Indonesia. The French chain is planning to open a second store in Machida, a suburb of Tokyo, later this month.
For its first supercenter in Japan, Wal-Mart is reportedly considering Makuhari, which is a 20-minute train ride from Tokyo, and Nagoya, a major city between Osaka and Tokyo.
“Japan in terms of department store retailing is one of the most highly developed of any country,” observed Marvin Traub of Marvin Traub Associates consulting. “The Japanese are dedicated consumers. They love to shop. Shopping is an incredible indoor sport. They tend to spend less on housing.
“But Wal-Mart will have to learn some things about the niceties of doing business in Japan. Gift-giving is enormously important and there’s an enormous emphasis on service. These things need studying.”
Traub speculated that there are probably a half dozen major markets that Wal-Mart would likely focus on with a “healthy number of stores, 25 or 30 or more” in total. Prime competitors would include Dai’ie and Jusco, he added.
There are more than 7,000 chain stores in Japan, according to the Japan Chain Store Association. The biggest group, Ito-Yokado, generated consolidated sales of $27.9 billion [3.1 trillion yen] for fiscal year ended Feb. 2000, while Wal-Mart Stores generated $165 billion for fiscal year ended Jan. 2000.
The nation’s total sales through national chains were $150 billion dollars [16.6 trillion yen].
Apparel sales in the Japanese national chains make up about 20 percent of total sales.
The nation’s long lasting recession is sparking more cross-shopping or a “bipolarization” in consumer behavior, said Yoko Ohara, president of IFI Business School. “Consumers’ liking and behaviors also changed. Some feel satisfied with fashion commodity goods while others go for luxury brands in Japan,” she said.
Most Japanese retailers face difficulties because they have not repositioned in the bipolarized market. Also, department stores and national chains have lost market share to rising retailers like the Gap and its Japanese equivalent, Uniqlo.
Japanese chains, since the nation’s high-growth years prior to the Nineties, have lost stamina. As of November 2000, there were 111 national chains, eight less than a year earlier, while the number of chain stores dropped 175 to 7,187, according to JCSA.
Ito Yokado reported a 1.5 percent drop in consolidated sales for the last fiscal year. Daiei, the second largest national chain group in Japan, decided not to pay dividends to shareholders for the fiscal year ending February 2001. The founder Kou Nakauchi stepped down as chief executive.
Another major national chain, Nagasakiya, went bankrupt last year.
“Personal consumption is still very slow,” said Motoya Okada, president of JCSA, in a statement last month. “In-store consumption is in the worst condition.”

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